ASX rival Chi-X given mixed report

The corporate regulator has today released its first market assessment of Chi-X Australia, the only rival to the country's main stock exchange, finding a raft of "agreed actions" for improvement or attention.

It is the first time Chi-X Australia has been assessed by the Australian Securities and Investments Commission since it was granted a licence to operate in Australia.

The report finds nine agreed actions for improvement or attention, including conflicts arising from its independent non-executive director's role as chairman of E.L & C Baillieu Stockbroking, a problem with its hidden order threshold controls, and problems with Chi-X's "documentation and record-keeping".

However, ASIC says that, while the agreed actions are important, they have not stopped Chi-X meeting its statutory obligations, and that Chi-X has agreed to fix any problems.

Since Chi-X Australia began operating in October last year it has been at the centre of the debate about "market fragmentation" and the growth of high-speed trading.

The ASX chief executive, Elmer Funke Kupper, has said authorities made a mistake by allowing Chi-X into Australia because it has contributed to market fragmentation.

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Carole Comerton-Forde, of the Australian National University's College of Business and Economics, has said that since the arrival of Chi-X, the use of high-frequency trading strategies has expanded dramatically.

But Chi-X says investors have benefited from its arrival in Australia through lower fees and "improved product offerings", both a direct consequence of competition with the ASX.

It has been lobbying the federal government to break the ASX's clearing monopoly.

The ASIC report notes that, up until March this year, Chi-X's share of total market turnover remained less than 1 per cent (below $50 million).

But it also notes that daily turnover increased during the final four months of the financial year, reaching a high of $150 million in mid-May.

On Thursday, Chi-X reported that its share of daily trading volume was more than 9 per cent.

The ASIC report says some of the improvement in turnover on Chi-X can be attributed to the launch of its trade reporting facility for off-market trades.